By Peter Farrell
11/10/2021
Whether you’re developing a menu for your new restaurant launch, or working towards improving your margins, calculating your food cost is one of the most critical elements to operate a successful restaurant. It’s essential to cost dishes correctly to ensure that the gross margins are sufficient to cover overheads and optimise profits.
In our blog, we’ve chosen key aspects to understand and remember when costing your menu correctly.
1. Food Cost Definition
It’s important to understand the actual definition of food cost as it has a direct impact on the profitability of a restaurant. Food cost is the ratio between how much it costs you in raw materials to make a dish and how much revenue you generate from that dish.
“The food cost % is then calculated by dividing the cost price by the selling price and multiplying by 100.”
2. Food Cost Percentage
What should my food cost percentage be? In order to run a financially healthy business, most restaurants keep their food cost between 20 and 30% of a dish’s menu price.
This range accounts for a variety of restaurant venues, from fast food to fine-dining and takeaway. Only you can determine your ideal food cost percentage by keeping track of your finances and seeing how customers respond to prices
3. Include Costings For Waste
Once you’ve set your menu prices and it seems to be working smoothly, It’s easy to think that you can set menu prices once and be done with it forever. However, if you want a successful restaurant, you have to track the effects of pricing on your sales to determine whether or not you need to adjust prices.
4. Tracking Your Price Change’s Effect On Sales Is Essential
Once you’ve set your menu prices and it seems to be working smoothly, It’s easy to think that you can set menu prices once and be done with it forever. However, if you want a successful restaurant, you have to track the effects of pricing on your sales to determine whether or not you need to adjust prices.
5. How To Keep Your Restaurant Costs Low
One of the most common ways to keep your costs low is to slightly reduce your portion sizes in a way where taste and quality are not affected. You could also find cheaper ingredients, however it’s important to keep in mind that customers will notice if your food quality suffers and you risk losing their business as a result.
If you would like support with creating your cost, but you’re not sure where to start, we can help you with everything from basic benchmarking, to completing your costing. Get in touch now for a free consultation.